Sunday, 15 November 2009

Nationalising the labour market

First nurses and degrees, now bankers' contracts are being controlled by the state. In a piece of short-termist populism, Labour have potentially sounded death knells for the City.

London needs the City. Britain needs the City. Without the City, who are we? It all goes back to the comparative advantage we have in finance, a theory that Adam Smith talked about a couple of hundred years back. I complain that the minimum wage is an undue interference on the freedom of contract between employer and employee, so this potential maximum wage is horrendous. What right does the state have to stop a bank using its profits to pay its bankers? Perhaps instead the state should stop supporting irresponsible practices, by bailing out and guaranteeing everything, and by making credit far too easy for far too long. If the shareholders don't like the bonuses, shares will drop. That is deterrence in itself.

Gordon Brown keeps saying he wants to "change the banking sector" and suchlike. The market will reallocate and change the banking sector, not the government, who don't have a clue what's needed. In the meantime, sort out the regulation as to minimise the size of credit bubbles.

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